Proposed demerger
Antofagasta PLC
02 September 2003
ANTOFAGASTA PLC
Park House
16 Finsbury Circus
London EC2M 7AH
Telephone: + 44 20 7382 7862
Fax: + 44 20 7628 3773
info@antofagasta.co.uk
2nd September 2003
Proposed demerger of 33.6 per cent. interest in Quinenco
Highlights
• Distribution of the Group's investment in Quinenco by way of dividend in
specie of shares in Andsberg Limited
• Consistent with Antofagasta's strategy to focus on its mining and
transportation activities
• Enhances value of Quinenco investment for all shareholders
• Redemption right at a fixed price of US$1.11 per Andsberg share
Antofagasta plc ('Antofagasta' or the 'Company') announces its intention to
demerge its 33.6% investment in Quinenco S.A., a diversified industrial and
financial group listed in Santiago and, in ADR form, on the New York Stock
Exchange. The demerger will take place via a special dividend to ordinary
shareholders of shares in Andsberg Limited, an unlisted Jersey-registered
holding company which has as its principal ultimate asset the investment in
Quinenco.
The demerger requires shareholder approval which is being sought at an
Extraordinary General Meeting which is to be held on 1 October 2003.
Antofagasta will today send shareholders a circular describing the proposed
demerger in detail.
Following approval of the demerger, ordinary shareholders will receive one share
in Andsberg for every share in Antofagasta held on the record date for the
special dividend, which is expected to be 1 October 2003. The shares in
Andsberg will carry a redemption right at a fixed price of US$1.11 per Andsberg
share, which represents an underlying value of US$6.00 per Quinenco ADR. The
redemption right may be exercised until 30 October 2003, and shareholders who
choose not to exercise their redemption right will remain as shareholders in
Andsberg.
Antofagasta is a UK listed mining group with operations in Chile. It owns the
Los Pelambres, El Tesoro and Michilla copper mines, together with a rail and
road network in Northern Chile. In 2003, Antofagasta expects to produce around
460,000 tonnes of copper at cash costs below 40 cents per pound, placing it
among the lowest cost producers worldwide.
Antofagasta today also announced its interim results for the six months ended 30
June 2003 with pre-tax profits up 46 per cent. to US$138.1 million. In
announcing these results, Jean-Paul Luksic, CEO of the mining division,
commented 'The proposal to demerge the holding in Quinenco will allow
Antofagasta to focus on its core mining and transportation activities and, as a
low cost producer, the Group should continue to benefit from any further
improvement in copper prices.'
Background
As stated in the Chairman's Review in the 2002 Annual Report to Shareholders
dated 6 May 2003, Antofagasta's Board has been considering various options in
relation to its non-core investments in order to focus on its mining and
transportation activities. As a result of this review, the Board appointed
Cazenove & Co. Ltd ('Cazenove') to review the options available to the Company
with regard to its holding in Quinenco in order to maximise its value to
Shareholders. The Board has also appointed a committee (the 'Committee') which
has been asked to review the proposed demerger and Redemption Right to ensure
that they are in the best interests of the Company and all Shareholders. The
Committee consists of two Directors, Mr. Philip Adeane and Mr. Charles Bailey.
Description of Andsberg and Quinenco
Andsberg is a wholly owned subsidiary of Antofagasta whose principal ultimate
asset is the Group's 33.6 per cent. holding in Quinenco. Antofagasta received
this holding in 1996 following the merger of its banking and industrial
interests with those of Quinenco.
Quinenco is a diversified Chilean financial and industrial group. Its shares are
listed in Santiago and, in ADR form, on the New York Stock Exchange. Its
principal interests are in five sectors:
• Financial services - a 52.2 per cent. interest in Banco de Chile,
Chile's second largest financial institution;
• Food and beverages - a 30.8 per cent. interest in CCU, the largest
brewer in Chile in which Quinenco's joint venture partner is Heineken. Quinenco
also holds a 93.7 per cent. interest in Lucchetti, a manufacturer of food
products including pasta and edible oils;
• Telecommunications - a 73.6 per cent. interest in Telsur, the leading
provider of telecommunications services in the 8th, 9th, 10th and 11th regions
of Chile. Quinenco also holds a 5.7 per cent. interest in Entel, a leading
provider of mobile telephone, long-distance and ISP services in Chile;
• Manufacturing - a 56.7 per cent. interest in Madeco, a manufacturer of
copper wire and tube and aluminium based products with operations in Chile,
Brazil, Argentina and Peru;
• Real estate and hotels - a 50.0 per cent. interest in Habitaria, a
residential real estate developer oriented towards Chilean families in the
middle and upper-middle-income brackets and an 89.9 per cent. interest in
Hoteles Carrera, which owns or operates a number of luxury hotels in Chile.
As at 31 December 2002, companies owned or controlled by the Luksic family held
82.4 per cent. of Quinenco's issued share capital (which includes the 33.6 per
cent. held through Antofagasta).
For the year ended 31 December 2002, Quinenco generated a net loss of Ch$75,480
million on revenues of Ch$396,299 million and the net shareholders' equity of
Quinenco was Ch$630,515 million at 31 December 2002.
For the six months ended 30 June 2003, Quinenco generated a net profit of
Ch$40,364 million on revenues of Ch$184,320 million and the net shareholders'
equity of Quinenco was Ch$670,825 million at 30 June 2003.
Principal terms of the demerger
The Company's shareholding in Quinenco is held through an unlisted
Jersey-registered public company, Andsberg Limited, whose principal ultimate
asset is the holding in Quinenco. The number of issued shares of Andsberg is the
same as the number of issued ordinary shares of Antofagasta (apart from one
non-redeemable ordinary share in Andsberg held by Dolberg Finance Corporation
Establishment ('Dolberg') on bare trust for the Company). Under the terms of the
demerger, Ordinary Shareholders will therefore receive:
One share in Andsberg for every Ordinary Share held on the Record Date.
The Andsberg Shares to be distributed may be redeemed at the option of holders
for a limited period until 30 October at a price of US$1.11 per Andsberg share.
The demerger is conditional on shareholder approval of the resolution to be
proposed at the Extraordinary General Meeting. If shareholder approval is
obtained, it is expected that the Record Date for ordinary shareholders to
receive the special dividend will be 1 October 2003 and that the certificates of
entitlement in respect of Andsberg shares (incorporating a redemption form
printed on the reverse) will be posted to ordinary shareholders by 3 October
2003.
Background to and reasons for the demerger
Antofagasta obtained its 33.6 per cent. interest in Quinenco in 1996 following
the merger of its banking and industrial interests with those of Quinenco. The
merger of these interests enabled Antofagasta to concentrate on the development
of the Los Pelambres and El Tesoro mining projects and to become a major
low-cost copper producer. The Quinenco holding played a significant role in the
implementation of this strategy and formed part of the security for
Antofagasta's share of the financing of the Los Pelambres mine during its
development period by enabling Antofagasta to maintain a majority controlling
participation in this project.
This strategy has been achieved with the successful development of these
projects between 1997 and 2001. Antofagasta now has three copper mining
operations, Los Pelambres, El Tesoro and Michilla as well as a rail and road
transportation business providing services in Northern Chile, the country's most
important mining region. It also has an active exploration programme in Chile
and Peru to identify opportunities for further growth in copper mining.
In 2002, the first year in which all three mines were fully operational, the
Group produced 460,700 tonnes of copper at average cash costs of under 40 cents
per pound, placing it among the lowest cost copper producers worldwide. In 2002,
Group turnover was US$863.1 million and profit before tax was US$176.8 million,
of which US$3.2 million related to dividend income from Quinenco.
The Committee supports the Board's conclusion that the interests of the Company
and its Shareholders will be best served by focusing on the Group's core mining
and transportation activities and that Antofagasta's interest in Quinenco should
be divested through the demerger of Andsberg. Since 1999, as Antofagasta's
mining interests have grown substantially, the Quinenco holding has become
increasingly less relevant to the activities and valuation of the Group. The
Board believes that the holding is not required to support Antofagasta's further
growth.
Following the demerger, ordinary shareholders will retain their investment in
Antofagasta. In addition, ordinary shareholders will own shares in Andsberg
which will provide exposure through its holding in Quinenco to a diversified
portfolio of Chilean and other Latin American assets, together with any other
investments acquired by Andsberg going forward.
In recommending the distribution of Andsberg Shares as a special dividend to
ordinary shareholders, the Committee has taken a number of important factors
into consideration:
• the demerger is in the interests of Antofagasta and is consistent with
a well defined strategy to focus on its core activities of mining and
transportation;
• the demerger enhances value for all shareholders without undermining
the valuation basis of Antofagasta, its capital and tax structure, its future
funding capacity or its longer term growth and expansion prospects;
• the demerger gives rise neither to an immediate cash tax payment for
Antofagasta nor the creation of potential future liability for the Company; and
• the demerger creates appropriate choice for ordinary shareholders and,
for those ordinary shareholders who elect to have their Andsberg shares for
redeemed cash, that the cash value ascribed to the underlying Quinenco shares
demonstrates fair value.
In addition, a number of issues relating to Quinenco have been taken into
account by the Committee:
• the historical trading performance of Quinenco and its subsidiary
holdings;
• given that Quinenco is controlled by the Luksic family, it is unlikely
that another buyer of a significant minority holding would emerge;
• given the limited free float of Quinenco shares (82.4 per cent. are
held directly or indirectly by the Luksic family) and the low trading volumes,
any attempt to release value from a direct sale of Quinenco shares would be
likely to attract a material discount to the prevailing market price if, in any
event, such a sale were possible;
• the share price of Quinenco trades at a discount to its underlying
assets due to the taxation and other costs that would arise on the realisation
by Quinenco of these underlying assets;
• the share price of Quinenco, in view of the above considerations,
reflects the performance and near term prospects of its subsidiary holdings;
• a direct sale by Antofagasta of its Quinenco holding would create
significant tax liabilities for the Group and thereby diminish any value which
could be passed to Shareholders; and
• the proposed structure mitigates the issues of market liquidity and
Chilean tax which would inhibit a direct distribution of Quinenco shares to
ordinary shareholders and a subsequent sale of such shares by them.
The demerger
The demerger requires the approval of shareholders since it is being effected by
way of a dividend in specie. In accordance with Antofagasta's Articles of
Association, such a dividend must be approved by Shareholders in a general
meeting. Shareholder approval of the demerger is therefore being sought at the
Extraordinary General Meeting which is to be held on 1 October 2003.
If the demerger is approved by shareholders, ordinary shareholders will receive
one share in Andsberg for every ordinary share they hold on the Record Date.
Andsberg shares will not be listed or quoted on any securities exchange or
regularly traded although ordinary shareholders will be granted a redemption
right in respect of all or part of their holding of Andsberg shares. This is
described below.
If Antofagasta shareholders do not exercise in full their redemption right, they
will continue to hold Andsberg Shares. Definitive share certificates in respect
of their Andsberg Shares will be sent to them by 6 November 2003.
Initially Andsberg's only significant asset will be its investment in Quinenco
and, although this will be its core investment, it is envisaged that it will
diversify its interests over time by investing in opportunities principally in
Chile and in the Southern Cone and also possibly in other parts of the world,
identified as offering substantial scope for capital growth and enhancement of
shareholder value. It is not intended that these opportunities will be in the
mining or transportation sectors in the Southern Cone which will remain the
strategic focus of the Antofagasta Group.
Right to have Andsberg Shares redeemed
It is recognised that some ordinary shareholders may not wish or be able to
retain their investment in Andsberg. Accordingly it is proposed that, following
shareholder approval of the demerger, Andsberg shareholders will have the right
to have all or some of their Andsberg shares redeemed for cash, by completing
and returning a redemption form (which will be printed on the reverse of the
certificate of entitlement to Andsberg shares) to be received by the Company's
registrars, Computershare Investor Services PLC, on or before 3.00 p.m. on 30
October 2003. The obligation of Andsberg to pay the redemption price upon the
exercise by ordinary shareholders of their redemption right will be funded by
Dolberg, an entity connected with the Luksic family, subscribing in cash for an
equivalent number of new non-redeemable shares of Andsberg.
Principal terms of the redemption right
Following shareholder approval of the demerger, ordinary shareholders receiving
Andsberg shares will have a right to have all or some of their Andsberg shares
redeemed for cash at a fixed price of US$1.11 per Andsberg Share. This price
represents an underlying value of US$6.00 per Quinenco ADR, reflecting a small
discount of 8.8 per cent. to the 30 day average price of a Quinenco ADR of
US$6.58 in the period ending 29 August 2003. This discount takes into account
the Committee's considerations referred to earlier in this announcement.
The tables below set out the average and closing prices over the periods and on
the dates indicated of a Quinenco ADR in US dollars:
Average prices (US$)
2 years 5.50
18 months 5.11
1 year 5.12
6 months 5.82
3 months 6.30
30 day 6.58
Closing prices (US$)
4 September 2001 7.65 1 May 2002 5.40 2 January 2003 4.80
1 October 2001 5.96 3 June 2002 5.22 3 February 2003 5.09
1 November 2001 6.05 1 July 2002 4.75 3 March 2003 4.80
3 December 2001 6.60 1 August 2002 3.55 1 April 2003 4.54
2 January 2002 7.35 3 September 2002 4.10 1 May 2003 5.92
4 February 2002 6.71 1 October 2002 4.00 2 June 2003 6.10
1 March 2002 6.13 1 November 2002 3.60 1 July 2003 6.10
1 April 2002 6.03 2 December 2002 4.30 1 August 2003 6.70
The price on 29 August 2003 (the latest practicable date prior to the posting
of the circular) was US$6.80.
The Committee has reviewed, with the assistance of Cazenove, a valuation of the
assets held by Andsberg and considers that the terms of the Redemption Right are
fair and reasonable so far as Ordinary Shareholders are concerned.
Current trading and prospects for Antofagasta
Antofagasta has announced its interim results today for the period ended 30 June
2003.
As stated in the trading statement accompanying these results and based on
management figures to date, annual copper production is forecast to be around
460,000 tonnes and cash costs are expected to remain under 40 cents per pound.
As a low cost producer, the Group remains well-placed to continue to benefit
from any further improvement in copper prices.
The Board also believes that Antofagasta's prospects in the longer term remain
good. In May of this year, Los Pelambres submitted an Environmental Impact Study
which, if approved, could enable a potential expansion of its existing
operations. Antofagasta has an active exploration programme in the Sierra Gorda
district in Northern Chile as well as in Southern Peru, through a joint-venture
with the Brazilian company CVRD to identify further opportunities for growth.
The divestment of Quinenco through the demerger of Andsberg is not expected to
affect Antofagasta's ability to take advantage of these opportunities.
Extraordinary General Meeting
Antofagasta has today sent shareholders a circular incorporating a notice
convening an Extraordinary General Meeting of Antofagasta to be held at 10.30
a.m. on 1 October 2003 at the Armourers' Hall, 81 Coleman Street, London EC2R
5BJ for the purpose of considering, and if thought fit, passing, the resolution
to approve the demerger.
Enquiries -
Antofagasta plc
Tel: +44 20 7382 7862
Philip Adeane
Email: nwakefield@antofagasta.co.uk
Hussein Barma
Email: hbarma@antofagasta.co.uk
Cazenove & Co. Ltd
Tel:+44 20 7588 2828
Nick Wiles/Nick Tulloch
This information is provided by RNS
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